Crocs plunges as analysts gripe about earnings inconsistency

By Andria Cheng

Bloomberg

Crocs

Plastic clog maker Crocs Inc. plunged 21% on Thursday after it reported a disappointing 43% slide in second-quarter profit and its third-quarter guidance also missed.

Crocs blamed cool spring weather that hurt U.S. and European demand. It also cited sluggish consumer spending in the U.S., Europe and Japan, which has wholesale customers holding back on placing orders. A decline in the yen and other foreign currencies also hurt the dollar-value of overseas sales, which account for about two-thirds of company’s business, Crocs said.

Sales in Japan dropped 17.7%. While they rose in the Americas and Europe, demand was driven by deeper discounts. Asia excluding Japan was a bright spot. Company-wide gross margin narrowed to 55.2% from 59.3%. Its customer orders, a gauge of future sales, dropped 6.7%, the first such decline in almost four years, analysts said.

While Crocs’
/quotes/zigman/99274/quotes/nls/croxCROX excuses are not uncommon, Wall Street’s bigger concern is the company’s inconsistent guidance. Crocs management on Wednesday said demand improved in June as weather got warmer and customers also liked its latest products. Crocs has been adding new shoe styles including sneakers and wedges to ease its dependence on clogs.

The company said it plans to open about 25 more retail stores this quarter and end the year with 600 company-owned locations.

Crocs Chief Executive John McCarvel said he’s optimistic the company has the right products at the right price to bolster demand going into next year.

However, analysts aren’t so sure. Crocs has missed per-share profit estimates in two of the past four quarters by an average of 19%, FactSet data compiled for MarketWatch showed. In comparison, of the 235 companies in the S&P 500 that have reported, only 10 so far have missed by that much or more.

“Guide and beat is good, guide and miss is not,” Sterne Agee analyst Sam Poser told McCarvel on a call last night. “It’s very hard to figure out what’s going on. You are setting a very high bar for yourself, and you’re not always jumping over it.”

Goldman Sachs analyst Taposh Bari told McCarvel while he understood external factors at play, “there is just this record of inconsistency in terms of execution.”

Jim Chartier at Monness, Crespi, Hardt & Co. cut the stock to neutral from buy.
“Management is back to square one in its efforts to rebuild credibility with investors,” he said.

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Behind the Storefront is a blog about all things retail. It’s aimed at investors, shoppers and anyone else with a passion for learning about what drives consumer behavior. Hosted by Andria Cheng, Behind the Storefront will cover the business, brands and shopping behavior that’s behind some of the biggest companies, and largest employers, in the world. You can reach Andria at Acheng@marketwatch.com.